The Law Of Gravity And The Housing Bubble
Several readers suggested a topic about which markets will fall the most. “Wouldn’t it just make sense that the martkets that went up the most will go down the most? It’s the law of gravity!”
One reader disagrees, “No. The ones that ‘go up’ the most are the ones that will also hold more of the appreciation. Places like LA, SF, NYC, etc. It’s like stocks. I’ll bet that Dallas, Atlanta, Houston, et al will decline far more in actual dollars and percentagewise from top to bottom than any coastal California city or NYC.”
Another said, “There were some bubbly areas that are truly nice places to live: San Francisco, Manhattan, San Diego. You would expect these places to always be worth more than, say, Gilbert Arizona, Las Vegas suburbs, or a Boise ex-urb…”
And another, “San Francisco, Manhattan, San Diego, these areas were likely among the most overrun by speculative fervor which drove prices up to a non-permanently-high pinnacle.”
“Speaking for San Diego, speculation, overbuilding of tract homes and luxury condos, toxic lending to unqualified buyers and appraisal fraud have worked together to push prices to a level where fundamental demand cannot touch them. My prediction: 1) Larger absolute $ loss in the coastal bubble zones. 2) Larger relative % loss in flyover country, where reinvestmen of liberated coastal equity drove prices bubbleliciously high.”
One from Texas, “I’m in Dallas. I don’t see Dallas being worse or crashing earlier. We never saw the run-up in valuations bubbly parts of the country have — so we won’t see the corresponding ‘pop’ those areas are currently starting to experience. Yes, sales are down and inventory is up and prices have been reduced a bit; but we don’t have a California or Florida situation. And while Texas is one of the worst states for foreclosure rates, I think that’s due more to the overall economic climate in Texas than bubble factors.”
“I think this time next year Dallas will look better than the bubble-markets. Of course, that’s a relative term; I define it as ‘not as awful.’”
One added, “I would agree that strong areas in Dallas, Atlanta, Houston will fare far better than SD, NJ, LV, Phoenix, FLA. However, areas of these metroplexes with monstrous commutes will get hit hard and never recover. I don’t believe one can generalize and say ‘Dallas’ will get hard equally across its metro area.”
“No bust has worked that way before…prime areas hold value better and recover faster. Condos will get hit hard in these cities, but some will recover over time. In Austin, homes close in that are in prime areas held up much better and recovered much faster and to greater heights than those further out in 1980s ‘boom’ neighborhoods.”
One from Georgia, “Will we look back in a few years and see that the housing bubble gave Atlanta a major edge in attracting new industry and people? Many of the Florida articles tell of people moving to Atlanta, a market with a large unsold housing inventory (I think Housing tracker.net says it is the second biggest after Chicago).”
“From what I have heard, Atlanta peaked in somewhere in 2002/2003 and prices have been declining because of the huge inventory. I find it interesting that the huge inventory there seems to have made it impossible for flippers to corner the market. Even with the housing bubble on the verge of bursting, people on the eastcoast will keep moving there on the next few years because of the continuing price advantage.”
The Austim American Statesman. “Chris Kostecka and his wife, both real estate developers, recently sold their home in Murrieta, the ‘last small town area of Southern California.’”
“They purchased a home in the River Crossing community of Cedar Creek, near Bastrop, that sits on 2 acres, with horse trails and a boat dock. Lured by Central Texas’ natural beauty, similar climate and cultural diversity, Californians are heading southeast of the Golden State. What’s driving the exodus? The sky-high cost of real estate.”
“While Austin residents grouse about rising real-estate values and property taxes, Central Texas looks like Bargain City to someone moving from California.”
“Austin-area real-estate agents credit the steady influx of Californians to Central Texas with keeping the market here strong, even as other parts of the country cool off. ‘They are sure helping to keep our prices stabilized. In some neighborhoods, the prices might be actually being driven up,’ said (realtor) Lynda Conway.”
My thinking has been that almost every market will revert to the prices of pretty much one prior year (for all), though they won’t all get there at the same time — that would iron out most of the difference in rates of increase. Exceptions would be anomalies like New Orleans and parts of the Gulf Coast, areas where a big new industry is moving in and the like. Those here who share this degree of reversion-to-mean thinking seem to have picked a “year” that will depict the bottom anywhere from 2001 to 1997. I tend to think 1998-99 levels,with a bit of overshoot in some areas. Obviously it won’t be as precise as this makes it sound, but I think the variations will be more due to the speed at which markets reach this prior-year point rather than the fact of it.
That said, I suppose there could be collateral (heavier) damage in areas that largely were unaffected, because dramatic declines in more attractive areas could lure away the former’s potential buyers. As an example, noticeable numbers of people, myself included, are leaving Florida. But if prices here dropped back to 1998 levels, they could once again lure the people who have been avoiding it, thus crimping the development plans of the till-now benefitting “halfback” states who do not read those tea leaves.
“As an example, noticeable numbers of people, myself included, are leaving Florida. But if prices here dropped back to 1998 levels, they could once again lure the people who have been avoiding it,”
If they can also keep the hurricanes away, I’ll come back too!
Until then, “Nothing could be finer than to be in Carolina…”
That won’t happen as long as the Credit Bubble lives on and creative loan products are pumped out by the banks.
I think if we were simply talking about how real estate would weather an economic hit that was coming from the outside- for example: defense industry, or tech industry layoffs etc… then perhaps the areas like SF, NYC, San Diego would fare better than areas with less panache….
But this story is different… the run up of real estate bubbles all over was fueled by lax lending standards, media hype, and rampant get rich quick mentality speculation.
I think the areas where people bought affordable houses to live in and make their homes without expecting to flip them for profit will fare better.
Any and all areas that had big pockets of speculation and where people bought houses they really couldn’t afford with the expectation they would enjoy it until the teaser rate expired and sell it and make money, those areas… no matter where they are will get hit hard. Plain and simple, in areas where people bought houses they really couldn’t afford are going to get spanked and it won’t be from an outside economic hit. This house of cards was built on quicksand and the major flaws are within the lending, real estate, mortgage industries themselves. They were their own Trojan Horses in this debacle.
It will unwind most painfully in all the areas where people mortgaged themselves foolishly and attempted to feather their nests with speculative feathers.
Athena…
Well stated.
Thank you for that supply of common sense.
“There were some bubbly areas that are truly nice places to live: San Francisco, Manhattan, San Diego. You would expect these places to always be worth more than, say, Gilbert Arizona, Las Vegas suburbs, or a Boise ex-urb…”
This stuff is making me crazy. It costs ONE-THOUSAND DOLLARS PER SQUARE FOOT to buy in Manhattan. The oncoming supply is gargantuan. Nobody here thinks that prices will drop by a nickel. I feel like I am talking to retards in New York when the subject is real estate. I’m done talking about it. I will only discuss it with my wife and on this blog. The denial is still so rampant.
Sure, Manhattan should have a premium over Utica or Gary, Indiana but $1,000 per square foot? Give me a f$cking break.
We recently sold a 3 b 2.5 bath condo for 250k beside a busy freeway. 1500 sq ft. the person who bought it did not put down a penny. We conceded 10 in closing to make the deal happen. On the books it would look like he bought it for full listed price. I think this has and is happening continually to get comp,s to get properties sold for more than it actually sold for.
big time
all deasls in 05/06 are leveraged by idiots not market timers/investors
I this bursting bubble will lead to a countrywide depression, I live in a bubble area, queens, NY. I never seen anything like this before, people flipping burgers are buying $700,000.00 homes with little money down, all kind of fraud is going on, led by creative RE agents. I will predict that 25% of all home purchase in 2005/2006 will lead to foreclosure, if price decline 10%, watch out, owners homes will worth less than the mortgage it would be easier for them to foreclose than waiting for a rebound.
No way we will have a depression! Perhaps in the housing sector, but not in the overall economy. Personally, way lower housing prices are a good thing. We did not have a depression after trillions of dollars were lost in the the stock market and we will not have one now! Thank goodness, we will see affordable housing again, and tighter lending standards. It is called a return to normalcy.
Perhaps in the housing sector, but not in the overall economy.
The only problem with your analysis is that in many places, this represents a distinction without a difference.
I agree lower house prices would be good for the economy. Too much of peoples incomes are going toward servicing mortgage debt. That’s money that’s not being spent in other areas of the economy. Although a lot of people are making up for it by using other debt, like credit cards, thus the negative savings rate we now have. This can only go on so long , then the pyramid starts to crumble. Which we are starting to witness.
I disagree with PG. Trillions should have been lost in the stock market but weren’t. The government should have allowed it to play out and people take their losses. Instead of a 3 trillion$ hit, they inflated housing 12 trillion$. It is also said that real estate has twice the effect on the economy as the stock market. My math says 12 trillion$ times 2 = 24 trillion$ or 8 times the internet bubble. This time it will play out as there is no other bubble available. We will see affordable housing again. Only those unaffected by the far reaching economic devastation will benefit. After the mother of all credit bubbles implodes, that leaves those with real dollar$. Last time I checked Americans had a negative savings rate. This will not be a depression, but the mother of all depressions. Take your picture of America now, because it will never be the same again. Bargains will be available, but only for those with real money.
Believe it or not, many people have savings. Furthermore, this is a very different economy than what we had in the roaring 20’s.
Yes, many times worse. Lose the rose colored glasses.
PG,
Could you give us some examples of why we will not have a serious recession?
I do not think the GDP, unemployment, CPI data, etc. from the govt count.
What is happening to the financial well-being of the bulk of the American population? Please exclude housing gains, as many here expect this to disappear (but will leave the “owners” with record debt).
From what I can see, we are hearing about massive layoffs from BIG corporations with good jobs and decent pay. Although we hear the govt’s numbers about job creation, they cannot seem to point to a particular company that is hiring in numbers (and for equivalent pay and BENEFITS) that would make up for the job losses in companies like Ford, GM, HP, almost all the airlines, etc., etc…
Almost everyone I know (some very educated who previously had excellent jobs) is making the same or less than they were in 2000. Their cost of living, however, has been rising dramatically.
It doesn’t take a brain surgeon to figure out why people are so gloomy about the economy. If (when) house prices fall below what people owe, we can kiss the consumer good-bye. That is where most of their spending money has come from lately.
What do you see that can rescue our economy?
Housing sector: Mortgage Brokers and their employees, administrative, finance; Banks who staffed up to serve the loan demands; Real Estate Companies and their employees- agents, finance, administration; Construction Companies and their employees- management, construction workers, administrative, finance; Subcontractors- Plumbers, Electricians etc… Retailers - Home Depot, Local Hardware, building supply stores, etc.
…And then all the businesses that enjoy the business expenditures made by these people, and all the businesses that enjoy the disposable income expendiitures of these people.
All the businesses that enjoyed the expenditures made by people with HELOCs who have been spending their yearly appreciation on cars, schools, vacations, home improvement, home entertainment systems etc…
What will not be touched by the rivers of cash that are now running dry?
In my county, 1 in 6 jobs are in this REIC
Good one, PG. I needed a laugh.
Laugh at your own expense. Fortunes are being made at your expense. Let me repeat, no Depression but opportunites. Very different from the 20’s.
That must be some killer koolaid you’re drinking.
I’m interested PG. Where do you see the opportunities and how are fortunes currently being made at a housing bear’s expense? I’m always willing to consider a reasonable argument.
Well there were plenty of opportunities in the 30s for those with actual cash money to invest. Lots of manufacturers got a bump when the war came. Buying property at depression prices worked out very well indeed for those who could hold on until the post war boom.
JP said fortunes are being made at your expense. i.e. right now. I ask how.
We’re all probably gonna make some dough after this thing unwinds which would be akin to the 30’s.
I think this could be very bad. Too many people have no equity and equity is a good thing - if the Chinese ever stopped buying our debt and interest rates went up - this could easily be a depression. Hopefully I am wrong.
Well I came back 6 hours later and PG was apparently unwilling to let me in on his secret system for making great “fortunes” at the foolish housing bears expense. Guess he had to get back to work blogging on his Iaminforeclosure site. I shall now take this moment to “laugh” at my own expense. “Ha” “Ha” “Ha”
Gee I feel better now. Thanks
CaseyI mean PGYou guy’s are dreaming. Lower housing prices are good in a low inflation normal economy where debt is under control.
The housing Bubble (read debt bubble) has fueled our economy for the last 5 years. A lot of our high paying and manufacturing jobs have left the country. Once housing and building construction stops, once consumer spending stops, so does the economy. We are all going to be in trouble.
Markets went up (supposedly) because of demand (buyers). Markets will go down because of no buyers (too many sellers).
Therefore, it stands to reason that the markets that will go down the hardest will be the markets with the most houses for sale, ie., the least amount of buyers per the largest number of homes for sale in any area.
I would further say that areas heavily influenced by flippers will see steep declines in prices. Also, markets where people streched into houses (the last two years especially) using IO, Option Payments, and ARM,s will be hit hit by forced sales. Moreover, the markets that combine both of these pressures will be the hardest hit. It seems to me many markets across the country fit this description. Including NY, Calif., Boston, etc.
Thanks so much for posting the article about Austin. It’s amazing to stroll through the urban streets and see all the California plates. We have a tremendous influx of people from California cashing out and coming here. Also, there are a lot of out of towners buying houses as “rental property” on speculation. About 1/3 of our market is speculative buying. It’s starting to drive the real estate prices in the central area though the roof. The suburbs are very reasonable and will probably stay that way. Along with the inflated real estate prices, we are starting to see the mortgage brokers advertise (and even push) the exotic loans including the option ARM.
Even more alarming is the number of downtown condo projects being proposed. You can’t open up the local newspaper without reading about another 20 to 30 story condo project in the permitting stages. To match the number of condos being built, is the number of speculators buying “reserved spots” for these condos. Some of these speculators are local but many are from out of town. In a few years, we’ll be just like Florida.
I’ll just quote the only sane man on that SDCIA board
RobertCampbell
Senior Member
Registered: 3/13/05
Posts: 655
10/19/06 at 05:48 PM
Re: Overpaying for property in Texas
I recently had a conversation with someone who lives in Dallas. He told me that it was amazing how much CA investors were overpaying for houses in the past 3 years.
CA ‘hot money’ would fly into town, see Dallas home prices and think they were bargains (compared to CA, that is).
Whereas a CA investor would come to town and pay full retail (or even more) for a house he thought was cheap, the smart TX investors would be buying the same property down the street that was in forclosure for 10-20% less.
Robert Campbell
The last time 1/3 of the houses were bought on speculation in Austin was in 1984-85. Same story, CA people moving in, high tech, cheap prices esp in the suburbs. Heck, the secretaries at IBM were buying two and three houses!
We know what happened in 1985-1990-92….figure -40+% in the suburbs, particularly away from Dell and in overbuilt areas. Figure 20-30% hit in town - Tarrytown and the like.
I posted before about my first house in Brushy Creek…$78K down to $42K or so. $42K for 1400 sf is pretty low cost housing
. This time maybe to $60K or so…
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“… which markets will fall the most.”
There factors will play the dominant role in how far the prices fall, in % terms:\
1. Percent of “investors” during the bubble years.
2. Employment % that was housing related.
3. How the non-housing related industries, or employment, holds during the coming recession.
Jas Jain
in the light of yesterdays thread about ‘places that are still inexpensive’ it is also interesting to look at this from a wider, international perspective. Many ‘attractive’ countries outside US and ‘Old’ Europe also have an economic + housing boom that is mostly based on foreign RE investment. What will happen when things get bad in Europe and US, credit is really tightened (I don’t see it happening yet, but who knows …) and all this foreign investment capital has to go back to where it came from?
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“and all this foreign investment capital has to go back to where it came from? ”
Excellent point, nhz. That is the macro-economic isuue overhanging the whole economy.
Jas Jain
I don’t know… The japanese lost billions in the US market some 15 or so years back. The big question is how FM and FM will weather the sheer number of bad debts heading their way, mostly with enormous losses on bad property deals. I am guessing they will continue to cook the books a while longer while the higher-ups continue to congratulate each other with massive bonuses…
I assume you mean FNMA and FRMC …
Along with Jas’s factors, throw in insurability (Fla problem) and state/local property/income tax burdens. High state income taxes magnify swings because as prices rise it is attractive to stow assets in the soil.
Jas, your point is very true. Let’s see what happens to Manhattan real estate if Wall Street has a down year. The only thing keeping the prices artificially high are loose lending and huge Wall St. bonuses. If those bonuses dry up, or decrease substantially, then we’ll see what Manhattan real estate is made of.
I think Number 3 on your list is the most important factor in most areas.
I think that you also have to look at housing oversupply. There will be a national trend to return rent/purchase ratios to sane levels once the funny money is off of the table. In places like Manhattan and SF this and the dissapearance of speculators will cause price declines. However, in places surrounded by developable land there has been an explosion in supply. A large oversupply of housing will lower the equivalent rents themselves. IMHO Naples, LV etc are toast, but in SF and Manhattan equivalent rents will remain high, although housing prices will fall to the level that ERs will support.
This would tend to favor urban over exurban areas if there is a proportionaly greater supply for those who would trade long commutes for a big yard. OTOH there has been alot of gentrification and condoizing in downtown areas as well. As real estate tax revenues fall, city expenditures will also have to fall, putting more pressure on recently gentrified areas.
I disagree with the premise that the more “desirable” bubble areas will not drop as much as others.
I live in Santa Barbara, Ca, one of the bubble capitials of America. I have posted this statistic before: the median SFR selling price in south Santa Barbara county dropped from a peak of $1,300,000 in the summer of 2005 to $1,010,000 in September of 2006. Those numbers come from the Santa Barbara Associations of Realtors (SBAOR). If there was ever a group of “real estate always goes up” cheerleaders it’s the SBAOR, yet their own numbers show a 22% drop in the median selling price for the Santa Barbara area between 05 and 06.
It is beyond me how any person can say that there won’t be a huge (25% +) correction in areas such as Santa Barbara or Palm Beach or Long Island when the numbers show that such a drop has already happened.
“It is beyond me how any person can say that there won’t be a huge (25% +) correction in areas such as Santa Barbara or Palm Beach or Long Island when the numbers show that such a drop has already happened.”
Don’t worry, the “experts” will predict a 25% drop in Santa Barbara, just as soon as they notice it has already occurred.
Prices have always been high in Santa Barbara. But even a 50% drop in prices housing will still not be affordable.
you are quite correct. Even with a 50% decrease the cheapest detached 3bed /2bath would cost at least $375,000. However, south Santa Barbara county is a bellwether area. Even the California Association of Realtors (CAR) treats the area different from any other county in California by dividing north county from south county in their monthly median price reports (check out their website http://www.car.org).
It is going to be very difficult for some seller in, let’s say, Riverside to ask $350,000 for a house (the current median in some Riverside zipcodes) when a buyer can by a house in Goleta ( the west side of south Santa Barbara county) for $375,000. That would be like buying a beatup Yugo for the same price as a new Lexus (no offense to Yugo owners).
I agree with you clearview. I live in Laguna Beach and have invested here over the last 11 years (nothing right now). Ziprealty has shown an average of about 35-40% of all listings in 92651 have reduced prices over the last 4-5 months and that Dataquick is showing an average of 35% lower sales volumes month-to-month between ‘05 and ‘06. Also, my gut level analysis from looking at new listings is that prices are going down quite a bit. Even thought Dataquick data has shown fairly big swings of ‘05-’06 monthly sales price comparisons (up 20% one month, down 15% the next), the amount of house you can get per dollar today is way more than it was a year ago. The Pennysaver has a lot of “motivated seller” or “make an offer” kind of language.
Would be interested to see what others in So. Cal coastal cities are seeing.
These are the sept data for LA coastal city/area zips. Only zips with 9 or more sales are included. Only SFH’s
Hermosa Beach 90254 9 $1,030 -12.0%
LA/Brentwood 90049 9 $1,625 -7.3%
LA/Mar Vista 90066 24 $877 5.1%
LA/Westchester 90045 23 $799 3.4%
Long Beach 90803 14 $1,002 -8.9%
Malibu 90265 10 $2,050 -14.6%
Manhattan Beach 90266 31 $1,379 -13.8%
Pacific Palisades 90272 18 $2,195 24.4%
Palos Verdes Pen. 90274 23 $1,500 -10.4%
Rancho P.V. 90275 32 $1,150 -9.8
Redondo Beach 90277 14 $883 0.4%
Redondo Beach 90278 26 $769 -9.5%
Santa Monica 90405 12 $1,175 -6.0%
Torrance 90504 14 $600 -1.2%
Torrance 90505 19 $769 -2.0%
Venice 90291 14 $940 -10.5%
Of this group, only PacifiC palisades showed a positive YOY.(may be that PP has had recent growth in new Mega mcmansions).
The spread between Brentwood(1625) and PV(1500) is $125,000. Brentwood is far superior than PV overall so i imagine that PV would see further drops. Spread between Manhatten Beach(1379) and Brentwood is $246,000:again brentwood is far better overall(bigger homes and lots, Older established wealth, home to LA’s rich and famous), so Mahatten beach should see more haircuts.
Pacific Palisades may be the best overall coastal community in LA County, except for the Home prices.
Seeing falling prices in south Carlsbad as well.
The bigger they are, they harder they fall, IMHO. There’s a lot more room for a $2M house to fall than one valued at $200K.
I’ve checked out some houses in Rancho Santa Fe (very expensive area) and prices escalated there just like anywhere else. If it’s credit that drove prices up, it’s debt that will drive them down, IMHO.
Here in LA County I noticed, in 9 or10 very pricy coastal Zips, Sept yoy delines of around 10%.( have listed these zip areas on an earlier post a blog scroll up/down). If S.Santa Barbara took a 22 % yoy decline from 05-06, then such LA communities as Palos verde Pennisula and the Southbay beach cities should see at least same % declines, and probably more. SBarbara has more superior assets than PV, and the LA SBay beach cities fare a bit worse compared to SB, at least as far as scenery and recreation. So if SBarbara goes down 30-40% or more, expect such hi-priced coastal LA areas as Palos Verde, ManHatten Beach,Hermosa Beach, and Marina Del Rey to drop at about the same % rate,though the process will drag out longer here in LA.
This correction is going to affect pretty much every real estate market across the country. But I think its going to be the ex-urbs that get hammered the hardest and longest. In Northern California, that means that homeowners in the Lodis, the Santa Rosas, the Tracys, etc. are screwed (50%+ drops in values from 2005 highs by late 2008). The Corte Maderas, the Elk Groves, the Milbraes–they have seen a halt to appreciation and a relatively modest decrease in home prices (20-25%). But its these areas that will come back the fastest, starting in ~2012-15. Ultimately, people want to own a home in nice community with good schools and good commutes. Its the areas where these expectations were compromised that will see the slowest recoveries.
“..people want to own a home in nice community with good schools and good commutes.”
I agree with you, Walt. Places like Loudon County, VA or far flung ex-urbs of Phoenix, or Tracy, CA will get killed. This is where much of the speculation was done, and these places were the geography allowed large developments and overbuilding.
Walt,
So you mean the good people of Sonoma County are wrong? Sonoma County is NOT the new Sausalito? You mean real estate doesn’t always go up?
You should have seen the shmucks quoted in the local paper recently. First of all, they said that price declines are unlikely so buyers better not wait for prices to drop, because it isn’t going to happen. Then they cited the price decline in the 90’s and said even then the price decline was only 4%.
Then they quoted Moody saying they predicted price declines of 7.something % in Sonoma County through 2008, and since the county has already seen an 8% decline this means that no more price declines are going to happen… sonoma county has already hit the bottom as Moody predicted what the bottom number would be…
Does stuff like that make anyone else spit tea on their computer screen while laughing? I think the Press democrat real estate section needs to have a LOL disclaimer.
Sonoma County used to be a beautiful area. Prior to the construction explosion, you could do a lot worse than a place like Petaluma if you only needed to commute into San Francisco once or twice a week.
Santa Rosa was always a pit, but up until the mid 1990s it was contained, leaving the surrounding area nice and quiet. But over the past ten years its overtaken more and more nice undeveloped land and converted it into McMansions, condos, and strip malls. Its all quite hideous. And nearly every household has at least one worker who has to commute into the Bay Area every day. I couldn’t imagine a less desireable quality of life.
I saw the proposed light rail from Sonoma to Marin counties a few weeks ago. The thing starts in Healdsburg! Who in their right mind would ever think about commuting from Healdsburg into San Francisco? I remember Healdsburg as a nice little town in the middle of nowhere with some cute little winneries and cheese shops, not as a bedroom community.
I couldn’t imagine a less desireable quality of life.
Correction–I couldn’t imagine a less desireable quality of life *for which one would pay several hundreds of thousands of dollars*.
I moved out of the county in 1998 because the money for the same job in SF was TRIPLE what it was in Sonoma County, and so was the commute. I tried commuting from Cotati and was homicidal by the time I got to work every day that it was worth paying double the rent and moving to Corte Madera. Went from having a 2+ hour commute to having a 20 minute commute. Made all the difference.
I moved back 2001 to Sonoma when my need to actually be in the office was much more flexible. The commute during drive times is now beyond horrendous, and thank gawd I am not in it. The build out of the cookie cutter subdivisions and cramming as much house on a postage size piece of land, and the Yups who are in love with themselves, moving in, slapping a coat of paint and some granite in the kitchen and thinking their 1920’s bungalow is now worth a million has ruined what used to be a quaint place to live and raise kids.
I hope the greedy, arrogant flippers and speculators all get eaten by their greed and have to find some other town’s rocks to crawl under.
:-/
Wow, I had no idea the area changed so much. My dad used to live there (in the 1940s-50s) and we used to visit there often. It truly was a beautiful place. It makes me sad to think they’ve ruined it with McMansions and strip malls.
Funny story, my binlaw told my husband that he “is worth over 1mil now that he “owns” some rental houses” in Tampa. I laughed and had to explain to hubby that his brother “ain’t” worth nothin’ because he OWES 1mil on those properties and worse, they are in a scary part of the Tampa area where value can’t possibly increase that much if they’re doing crack deals a few blocks over! I guess his bro failed to understand that all of those rentals he bought over the last two years and now “owns” now have much higher taxes and the homeowners insurance has gone up astronomically in the last year or so. Even if those rentals did increase in value very much, it’s all lost by now and then some…and his bro is a robert kyosaki worshipper too!!!!!!!!!! Thinks the guy is a genius!! Wonder if he still thinks he is????
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We have a resident genius in our little town. He informed me that he is a millionaire now. He is married to a woman who wears the pants in the family and has a high paying job. He does nothing other than some building work on the home they live in and speculate in land. I joked, “How come you don’t have a trophy wife.” He said that he is lazy.
Anyway, do you know how he thinks that he is a millionaire? He values a lot three times what he paid just the day after the purchase! He bought one at an Internet auction for $40K and told me that it is worth more than $100K (I know the neighborhood where the lot is and in a year or two the lot will be worth less than $20K if he can find a buyer).
Yes, “Genius Is Rising Prices.”! The quote is from Galbraith in his book on the 1929 stock market crash.
Jas Jain
Does anybody have a brother-in-law that isn’t an arrogant dummy? Tell the b-in-law to come up to New York. Donald Trump, Tony Robbins, Robert Kiyosaki and Jim Cramer are all going to be at the Javits Center for a huge real estate seminar. If you act now you can pay only $99 to get all of that genius in one room.
Nothing makes me want to puke more than Donald Trump saying, “if I could do it, so could you.” Your daddy is worth $3 billion you arrogant prick. That’s how you did it AND how you stayed out of prison.
Tony Robbins? Isn’t he the guy with what appears to be acromegaly? He must be the “motivator”.
he’s the man with big teeth, if that’s what you mean
My daughter and son-in-law recently unloaded a cash-flow-positive (for them) house in Tampa, in one of those scary Tampa neighborhoods, at a decent profit and they now are totally out of Florida. Good for them, dark clouds moving for the buyers.
Chip,
Did they do this because of your influence? If so, congratulations on being one of the few who could convince family/freinds to sell at/near the peak.
Assuming that lending standards are tightened, areas where prices are the highest multiple of median household income would take the longest to recover.
Exactly.
In places like L.A. and even worse O.C. and the Inland Empire, which are not high percentage long term vacation home areas, and where median prices climbed to large multiples of regional incomes, prices MUST fall very significantly over the medium-to-long run if not sooner, because the average buyer cannot make the payments on the average sale over the past few years - the only thing driving prices over the past couple of years was non-sustainable mortgage practices.
Out here in the boonies (SW MO) there has been a modest run-up in prices…say $50K since 2000 (my guess, sorry just gut feel no facts unfortunately). However that run-up was on a base of $80K so %-wise it’s substantial (e.g. 65% increase). I think these prices have been driven by outsiders moving in from higher priced areas (which was practically everywhere else). These newcomers were not flippers, or even super-rich equity bandits, just people from areas where they could sell their house, pay off their mortgage, and then have enough cash for a house here. But now these outsiders are not moving here anymore as they cannot sell their houses in the other areas. Therefore I predict that prices will crash here totally because the houses will have to be sold to the locals, who have mostly min wage jobs. Now, this may just be hopeful thinking because I want to get a really good deal on a house in 2007 (or build one myself). But I see all around me unsold mini-McMansions that are wwaaayyy overpriced for the locals (e.g. over $125K) and NOT SELLING anymore. Typical rent here is $200-$500/mo for apt. up to new duplex. So my prediction is that the rural/low cost areas with crash first, because their influx, even if modest, of outsiders has dried up completely with the slowdown in the primary and secondary bubbly areas.
Exactly! In the long run incomes in an area will dictate prices. Short term cicumstances, like a speculative mania and equity locusts, may throw prices out of line for a while, but incomes will ultimately determine prices.
Areas that Flippers have been attracted to, (e.g. AZ and FL), that were once affordable enough to allow multiple purchases, appear to be leading the drop, as predicted, with the structures in the upper third of initial asking prices plunging the farthest right now.
Areas that are most ‘desirable’ and ‘bubbilicious’ are debatable- but if we are able to ascertain even roughly which places have the greatest increase in inventory (available MLS homes for sale, plus estimated flippers with multiple holdings, plus projects that are expected to be completed, plus FSBOs)- that should cue us as to which areas will follow with the most accelerated price drops. Supply vs. demand is going to be one of our most reliable foundations for predictions if we can find that data. The other Ben’s tracking site showed the Phoenix inventory growing dramatically for months prior to what we all know is happening there now.
I think areas will revert back to a prior years prices in most bubble areas. I feel the runup since 2002 was artificial and will be reversed. Most of coastal Ca was significantly overpriced even then. But I think supply and demand will keep the nice areas at the 2002 levels.
If we revert to 2002 prices in places like Phoenix prices will be unbelievably low. IMHO the exurban areas will begin to grow very quickly again as Snowbirds and people from Ca, Midwest, Rustbelt etc move in to take advantage of the affordable homes in a growing job market. This place has not become the 5th largest city for no reason. I am not sure we will stay here but I do see this place having growth potential. The urban high crime areas will suffer.
Yes, deserts have always featured limitless growth potential…
I don’t think many places will be spared in the crash. Almost every city in America has seen dramatic appreciation relative to what the local incomes can support. The magnitude that an areas will get hit will be relative to the degree that prices appreciated above the level incomes can support.
Anybody who thinks that this time is different, in the sense that prices will not fall by as much as in previous busts, is ignoring several critical factors:
1) The Great Bubble mania is far more pervasive than previous housing manias. Instead of just afflicting the coasts, this time we have overvalued homes in Fayetteville, Arkansas and Lexington, Kentucky, and Minneapolis, Minnesota not to mention big cities world wide from London to Sidney to Madrid to Capetown to Shanghai. The correlated price increases across these widespread locales on the way up will play out in reverse on the way down.
2) The duration and magnitude of real home price inflation (largest ever in real terms, and ongoing from 1998-2005) resulted in a “bear capitulation” effect at the end, which amounts to a collective loss of rational perspective when a mania lasts much larger and grows far bigger than anyone suspected was possible. The unfortunate consequence is that the individuals driving the market as of 2005 had lost touch with reasonable expectations for future rates of price appreciation. Consequently, those who bought in 2004-2005 will learn the hard way that home prices cannot increase at 10%-20% real rates forever, and what’s worse, such euphoric episodes generally end in a crash.
3) The factors which allowed unqualified buyers to pay unaffordable prices are ephemeral (including appraisal fraud, absence of loan underwriting standards, lifetime-low interest rates, collective irrational exuberance about what a home is worth, and all this despite massive overbuilding on top of record inventory levels). When these extraordinary factors all end at approximately the same time, there will be no price support for bubble valuations.
Pay attention to GetStucco because he got it right. Let’s say all the air comes out of the bubble. How does the economy take a 12 trillion$ hit without it affecting it adversely? Don’t forget people won’t spend under those circumstances. Under those circumstances, can you say, what economy. What about all those in homes before the bubble nearing retirement? How many will still want their house when half their value went up in smoke? Much more selling pressure on the downside. Tremendous opportunities will be out there. Sure there is $ out there, it’s not in as many hands as you might think. Everywhere goes down. No reliable way to predict who lied to get into a house. Look out for California where 80% need arms to get into that home. What I wonder is what happens with the 457 trillion $s of hedge fund bets out there? Do you think they all got it right? Where’s Fred Sanford when you need him?
Pay attention to GetStucco because he got it right. Let’s say all the air comes out of the bubble. How does the economy take a 12 trillion$ hit without it affecting it adversely? Don’t forget people won’t spend under those circumstances. Under those circumstances, can you say, what economy. What about all those in homes before the bubble nearing retirement? How many will still want their house when half their value went up in smoke? Much more selling pressure on the downside. Tremendous opportunities will be out there. Sure there is $ out there, it’s not in as many hands as you might think. Everywhere goes down. No reliable way to predict who lied to get into a house. Look out for California where 80% need arms to get into that home. What I wonder is what happens with the 457 trillion $s of derivatives out there? Do you think they all got it right? Where’s Fred Sanford when you need him?
First off, I think of WHY speculators were attracted to bubble areas. Obviously, first and foremost was the possibility, no, the absolute certainty, of making big money, fast and easy. It’s not because they loved the schools or weather or the house, or whatever. It’s a phenom that has fed on itself, spreading to areas where there is no particular quality of life. Just land with houses, and the psychology of trading those houses like stock. This thinking has infused all parts of the country, more or less. When I was in Denali, Alaska last year, locals were talking about real estate investing, for crissakes! Flipping has been compared numerous times on this blog to the day trading days….the allure of day trading tickled down to the neophytes trading on margin, and eventually losing their asses. Same thing going on now…It’s just that this time, the stocks are houses, the time frames are much longer for trades…but the mentality is the same. That’s why the flipper in Indiana is going down with the flipper in Arizona.
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“First off, I think of WHY speculators were attracted to bubble areas.”
Speculators are attracted to Rising Prices. Period.
Real long-term investors are attrcated to Depressed Prices!
Jas Jain
No. The ones that ‘go up’ the most are the ones that will also hold more of the appreciation.
I remember thinking the same thing during the dot.com boom/bust. A stock that went up 1000% would have much more “cushion” on the way down than a stock that went up only 100%, and thus would preserve more value for the stockholder. Of course, what really happened is the 1000% stock went down in value 20x as fast as the 100% stock.
actually in the dotcom boom, many stocks that went up the most are mostly worthless
pets.com anyone?
Someone said:
“And another, ‘San Francisco, Manhattan, San Diego, these areas were likely among the most overrun by speculative fervor which drove prices up to a non-permanently-high pinnacle.’”
*******
This is a nice sentiment, and I’m only speaking of SF city proper here, but I cannot see how speculation could have been nearly as rampant here as some other places.
It was very expensive to begin with - even before the bubble got extreme circa 2004 to present. Maybe in the farther flung SF suburbs this situation could be somewhat different (I’m talking to you Sonoma, east Contra Costa, southeast Alameda and southern Santa Clara counties)… but I still think the speculation in places like Reno or Sacramento (places I’m somewhat familiar with not far from here) was *much* more prevalent in part because they were cheaper to begin with - and for price declines in those areas to eventually (if not already) be more severe on a percentage basis.
Your sentiment will change in about 6 months. You are failing to look at the warning signs. Califorina counties such as San Diego and Santa Barbara have been going negative for at least 6 months. Bay area counties such as Santa Clara and Sonoma are starting to go negative on price appreciation. I don’t know you, so I will assume you are an intelligent person, but you are like a passenger on the Titanic who refuses to believe that the ship is sinking because your stateroom is still dry.
…but you are like a passenger on the Titanic who refuses to believe that the ship is sinking because your stateroom is still dry.
Nice!!!
clearview -
Let’s meet back here in five years. You bring the HPI data and we’ll see which of these cities has the greatest percentage change in home prices.
San Francisco.
Sacramento.
Reno.
Thanks.
Ok, Jack. I’ll go right out and buy a 2011 calender and mark Oct 23. However, we won’t have to wait that long to get a clear picture of how much California is going to adjust. I believe that most of the adjustment will be over by October, 2008. My predictions:
Coastal counties (including San Fran) will adjust down, on average, 50%.
Inland counties, such as Sacramento, will adjust down 50%-60%.
Ok, so I’m saying that Sac will go down more than San Fran.
Just remember that the average buyer in 2005 payed something like $1,000,000+ for a house in San Fran and something like $ 350,000 in Sac. A 50% drop in San Fran is a $500,000 loss. A 60% drop in Sac is a $ 210,000 loss. We can dicker over percentages, but you have to agree than, in real cash terms, a big loss in Sac is less than a smaller loss in San Fran.
I’m sorry. “payed” sould be “paid”
SF Jack - Maybe another way to look at *speculation* is to say that taking out an ARM or I/O mortgage is a form of speculation. People who take out these loans are speculating that values will keep increasing, that mortgage rates will stay low, that they will be able to refinance in the future, etc.
Looking at it this way, the amount of speculation in SF is probably very high.
I see what you are saying and certainly agree.
But only up to a point. Because it is my belief that in SF, versus those other cities I mentioned, there are more people for whom an ARM or I/O was an appropriate financial strategy.
Many more people. And if, in fact, it was not an appropriate strategy for some individuals, the opportunities for helping some to overcome their initial stupidity is greater. The relative financial penalty for such in those other places is/will be higher.
So while, yes, there was speculation of the type you mention, it again was not as prevalent as in those other places.
The current housing bubble is part of the credit bubble caused by the Federal Reserve after 2001. Interest rates were dropped too far and kept there too long. Tax cuts, capital gains and income, and increased govt spending have given capital and incentive to speculate in the housing market.
I expect prices to fall back to 2001 levels plus 3 to 5 % for inflation and wage increases. Prices may fall lower since builders have inventory of land bought before 2001 and they can still build houses at 2001 prices + 20% and still make a profit. These are inventory profits on land.
Land values should take the biggest hit. Especially land purchased in the last few years.
Houses in NorCal are now around $500k will probably fall to low $300Ks. But they may overshoot on the downside because of short term speculators leaving the market and job loss in construction.
Land value will definitely take a bigger hit. This because houses around the vacant land will be going quite a bit cheaper than it costs to build new.
Example - Austin TX again where I lived from 1983-end of 1995.
Long Canyon in the hill country not too far out of town. Upper middle class/affluent area. Lot prices were $70-80Ks or more in 1985. By 1990 they were $30sK. I bought a lot which was originally $80+K for $26K OWNER FINANCED
. Sold it two years later for $46K (my only flip).
actually the housing bubble is much older if you look outside the US. In some EU countries like Netherlands the bubble started in the early nineties and has been growing ever since; home prices in my area are now 800-1000% higher than in 1990 with wages up maybe 50% over all those years (barely higher than official inflation). Despite the difference in timing and bubble dynamics, the cause of the EU bubble is mostly the same as in the US, easy money. I think it is better to pinpoint the start of the bubble in 1987, when Greenspan took over at the FED.
Reversion to the mean is economics’ version of gravity. It has been weak in housing because information about prices was hard to come by. Zillow.com’s price histories will make housing more like the stock market. Note that prices started sliding shortly after Zillow appeared on the scene.
Re Texas high foreclosure rate, there is a sob story about a FB in today’s Houston Chronicle -
“But Texas’ quick foreclosure process, compared to that of other states, leaves little time for borrowers to save their homes.
It could take as little as 41 days after a default for a homeowner to receive a notice of foreclosure from the lender. It takes an average 21 days after that to lose the home, according to the state’s study.”
We havent had the insane appreciation other areas have had. What we do have is too many houses and too many folks qualifed for loans they could never afford. I would hope the 41 day minimum would only apply to chronic latepayers, but who knows.
But the foreclosure process is moving very vast.
Just finished talking to a fraternity brother I haven’t seen in 40 years. He’s an architect and builder in Atlanta. He tells me he is seeing a huge increase in people who are in deep trouble with their mortgages.
A bit here, a bit there. By Jove, Watson, I believe that is quite indeed an iceberg. And a rather large one, at that!
It takes a minimum of 45 days to forclose in Georgia. Georgia’s foreclosure rate has doubled since last year. Since there are a high number of IO loans, I expect it to only get worse.
“From what I have heard, Atlanta peaked in somewhere in 2002/2003 and prices have been declining because of the huge inventory. I find it interesting that the huge inventory there seems to have made it impossible for flippers to corner the market. Even with the housing bubble on the verge of bursting, people on the eastcoast will keep moving there on the next few years because of the continuing price advantage.”
The MLS for Atlanta area comprises a 26 counties. The median house value has no real meaning. Inventory is growing, prices are slowly dropping (more in some areas than others), and foreclosures are high. People moving to Atlanta won’t be insulated from the housing bubble.
I live in the gulf coastal area - Mobile, Al. We usually see houses prices increase about 5% a year. This past year the increase was about 15%. However, almost everyone here think that was caused by an influx of both people and business from the NO area. So, from that aspect Mobile gained. It will be interesting to see if future increases revert back to the 5% levels.
i do expect to see a deflation here over the next few years as this housing bubble begins to wind down. I really do think Mobile is different and a very unique place to live. BUT NO PLACE IS IMMUNE TO WHATS GOING ON IN THE RE MARKET. No one is going to completely escape, not even here (contrary to the local realtor BS projections).
However, the Mobile beach areas are an ENTIRELY different story. Prices there are simply incredible. Condo’s selling can cost $500k up to $1mil. But this year, activity has stopped - like hitting a speed barrier. This past month there were 3200 condo’s for sale, 42 did sell. Even the local newspaper (the Mobile Register) has begun to reluctantly (and slooowly) report on these conditions. The bubble bursting is rapidly taking place at the beaches. It will get much worse there, hopefully not affect Mobile city itself so much.
Insurance at the beaches is an impossible situation. I read that one person received an insurance increase to $40,000 a year. I think they stated that the average premium was %13,000. This wasn’t the entire area though, just certain selected danger points.
“This past month there were 3200 condo’s for sale, 42 did sell.”
Shucks, that’s just a 76-month supply. Not much longer than the 0% financing offers on some of these leftover cars and trucks. So where’s the problem?
It will be very interesting to see how “flyover land” fares as this plays out. Realtors here repeat, ad nauseum, that California and Florida are the only areas in trouble. Maybe that’s right if it’s Kansas or Oklahoma, but there are plenty of oveheated areas between San Fran and Miami.
Colorado? Nevada? Arizona? Even if one thinks that the worst is over, I don’t know how anyone could even try to overlook the losses that have already been felt.
I think any projection of future losses starts with figuring out 1) what percentage of mortgages are some toxic variety, 2) how many mortages have a LTV of 90% or more (real market, not purchase price), and 3) what percentage are not owned by the primary occupant. Any area that exceeds 30% in any measure is going to feel pain–if they score above 30% in multiple measures, its going to be a lot of pain. In some areas (Sonoma County, for example) I’d wager that all three are exceeded by 50%. The only people who can weather the storm are longtime homeowners who haven’t tapped any of their home equity for credit and won’t be looking to sell for another 10 years. In other words, not very many households.
“We usually see houses prices increase about 5% a year.”
Just had a thought..this is in reference to everywhere and anywhere..
Often, we hear that real estate normally appreciates at x or y percent plus this or minus that, etc.
When a home was say, $200k, 5% growth was only $10k…
When that same home was say, $400k, that same 5%, became $20k…
Now that home is $600k and that 5% is $30k….
Here is my thought/question:
Is it possible that this growth was only possible on the lower base values and there was room for price growth?
Is it possible that even without a “pop”, “collapse”, etc. that there could be a period of n years (even abscent a speculative bubble) where there just can NOT be any room for prices to grow?
I don’t so much mean a reversion to the mean, as much as I am thinking that there is some “theoretical ceiling”…and once you hit it, everything else being equal, prices just stop rising…
I would say yes if the price rise was based on solid fundamentals and solid loans to solid borrowers. That said, absoloutely not. Prices can and will fall to the point real estate makes sense. Here in California affordability rates are so low virtually no one can afford to buy anything without taking out very dangerous loans and lying through the teeth to get them. Perhaps in other areas this is not the case…
” if the price rise was based on solid fundamentals and solid loans to solid borrowers”
that’s what I meant..take out the speculation, exotic mtges, etc….
based on fundamentals rather than just plain “mentals”, how could prices rise year after year after year?
if new car prices rose 5% every year, I suspect that it wouldn’t be long before the majority of people could not buy a car..
I see the same thing happening with college tuition. Isn’t there some point where people say, “$100k per year?”…hmmm…looks like “I’ll have to become a Realtor”…
College tuitions could rise to several hundred thousand a year and they’d still be a good investment for people who plan on being in the workforce fulltime for 40+ years in most professions. The earnings potential of a bachelors degree from a good school over a high school diploma is that dramatic.
I didn’t mean it isn’t a good investment, I meant, many people juast plain won’t be able to afford it.
I have my doubts about that. A degree in certain areas of business, or in the hard sciences, computers, perhaps but communications, womens studies, leisure studies, anything ethnic, social, or psychology it is a waste of money and worse, time.
Trade schools, night schools, and otj training are much better investments for most high schoolers. I have three business degrees (AA, BS, MBSA) and I still had to figure out on my own how to start a business. Todays universities train corporate & gov’t drones. And we are seeing now how the pensions are going with those entities, not to mention how well equipped these people are to evaluate major purchases!!!
There’s no law of nature saying that a house has to appreciate 5(or any)% a year. I’m thinking such references are only to the annual inflation rate, to which houses are not immune, nor should they have any claim to appreciate at a faster rate.
several extensive studies have shown that normally home values appreciate at just 0.75% or so above inflation (or GDP). This 0.75% is not enough to cover expenses like upkeep, taxes etc. on a private home so a private home is a lousy investment. It also shows that for investment homes, the rent you can collect is the only thing that determines investment value. This has been true in most of the world until about 1970. One of the most famous studies is the ‘Herengracht Index’ from Dutch professor Eichholtz, which was also used by Shiller in his book ‘Irrational Exuberance’. The Herengracht index tracks home prices for one of the famous canal streets in Amsterdam, from the early 1600’s until 1970.
It took about 350 years (1620-1970) for real home prices in Amsterdam to double; but after 1990 real home prices doubled every five years or so …
Most of the world’s cities are unaffordable. It going to get worse over time in the US.
Location is key, if you’re thinking about city areas with rapid transit resetting, forget it. Most city folk rent. More will in the future.
Entry level homes will be most active because they are most affordable. For those kinds of properties there is some limit to the price *before* they are bought to tear down and replaced by taller homes, townhomes or condos.
with economic inequality rising rapidly in most anglo-saxon countries, I think it is a sure bet that the big cities (where the money originates) will get even more expensive; at least relative to the average price or wages for the country.
test
Speculating on which bubble area will fall the most strikes me as being a pointless exercise. Given the second- and third-level effects of collapsing property values, the unpredictabilities run right off the scale. For example, when legions of illegal alien workers find themselves without a means of subsistence and unable to support their families, does anything think they’ll meekly troop back to Mexico, El Salvador, etc? Or will they help feed the Mother of All Crime Waves, reversing “gentrification” and feeding urban (and rural) blight. Will we see social unrest as unemployment worsens and bitter FBs seek scapegoats for their own stupidity? We can speculate, but for the most part, this thing is going to take on a dynamic of its own and play out in ways that few of us could fully foresee.
reversing “gentrification”
“Un-gentrification” is pretty inelegant. Sammy — this is you chance to coin a new term, for the reversing of gentrification. Not being sarcastic — I think it will be a fact in a number places.
Degentrification
look for large increases in all types of property crimes and black-market activity in and around the innor LA metro areas if the predicted colapsing prop values lead to massive innor city unemployment among the illegals/low-rung workers. All those distribution warehouses throughout LA will see unexplained transfers of product out into the streets of Compton, which has always been the stolen goods central distribution center for LA.
“Rebound could be slow
Valley home prices aren’t expected to dip much lower, but everyone is watching for signs the market is done slowing.”
Seems like everyone is looking for the end of the downturn in real estate, but after living in SoCal in the 90’s, its unlikely that the downturn will be over in less than 5 years. It all depends on how many jobs will be lost and will lenders eliminate exotic loans. Prices fell in Socal for about 5 yrs in the 90’s. The same model of home, we had, sold for 220K, down from 400k at the peak, a reduction of 45%.
BUT IT WILL BE different this time! probably worse!
“…its unlikely that the downturn will be over in less than 5 years.”
You could be right, but I think that communications technology will shorten that time-to-bottom simply because so much information is available to so many people, worldwide, virtually instantly. For example, there was no text-messaging for rumors in any previous downturns, even the dot-com bust, as far as I know. IMO, the Internet and cell phones could unwind the markets much faster than in previous times simply because so many people will know so much, so fast.
… and I think that - if it makes any difference at all - the internet will slow the downturn because people THINK they have more information while most of them only have worthless data. This bubble has already taken much longer to unwind than many previous bubbles all over the world.
nhz,
Agree. I’ve been one of the few who actually think technology will slow things down, as sellers used to rely on Realtors to price their homes in previous cycles. Realtors want to get paid, so they suggest a price that will sell (true market price).
These days, we have all these yahoos who know exactly what all their neighbors’ houses sold for in 2004 and 2005. In their minds, their house is worth at least as much as homes sold at peak price. They simply have to wait for “the right buyer” to come along who’s willing to pay off their debts and give them a nice windfall to boot.
IMO, this downturn is taking much longer than it should have, and I attribute that to 1.) the internet and (2.) suicide loans.
Just my $.02.
P.S.: best example: according to most on this blog, the US housing bubble has been bursting for about a year now, and price declines have been in full force for several months. But Europe is totally unaware of this fact. I can assure you that if you tell people on the street in my city that home prices in the US are declining, the only thing you see will be total disbelief (except maybe for those that don’t follow ecomic facts at all). And I’m in a country that is probably more in touch with foreign countries than most of the world.
Bubbles are supposed to be detached from fundamentals. No doubt low interest rates caused the initial run up in prices, but the run up went way too far. The part of the increases that can’t be justified by interest rates (long term rates are still less that 2% higher than the historic low) is the part that is now going “poof”.
… and by the time the unjustified part goes ‘poof’ the low rates will go ‘poof’ as well because all the FED manipulations no longer work. That will remove the rest of the increases and probably a little more. The only catch is that heavy manipulation of the CPI, money supply, home price statistics etc. will make it very difficult to see what is actually happening.